#161 Making $10,000/Hour

Grant Wiese

Oct 12

5 min read

SW Financial Literacy

Making $10,000/Hour

Three phone calls, thousands of dollars at stake, and the value of having someone in your corner.

I received three very important calls over the past month. Every single one had important farm decisions that would have a way bigger impact on their operation than what they realized at the start of the call.

Read through each of these and see where it relates to your position.

I can guarantee if you look back over the past five years, there has been some choice or decision that you made that has cost you tens of thousands of dollars and could’ve been prevented. Read below and you’ll see why.

Land Rent

This absentee landowner wanted to check with me on the rental rates. It’s been three years since they’ve adjusted rates. They only own 240 acres that they inherited from their parents, and they have never been on the farm themselves.

In a 90-minute call, we discovered that one of the properties was accurately priced, and the other, much higher-quality piece was drastically underpriced. The landowner had essentially only been raising rent enough to stay ahead of property taxes. The property was now $15,000 per year behind average rental rates for the area.

That 90-minute phone call earned them $166 per minute, or $10,000 per hour. And that doesn’t take into account the loss of rent they’ve received over the past several years.

If an absentee landlord, who actually knew their stuff quite well, can make this costly of a mistake with only one decision to make per year… how many slipups could a farmer make when they’re dealing with thousands of decisions and millions of dollars every single year?

This is exactly why a farm advisor or another individual to bounce ideas off of is a necessity.

Keep or Replace

This row crop producer farms 2,500 acres with his brother. They were presented with a sweetheart deal to upgrade into a newer used combine one year sooner than they expected. They were concerned they were falling behind on technology and were ready to jump on this upgrade before giving me a call.

Digging deeper into the situation, they had plans to upgrade the planter next spring and would really like to avoid upgrades on two pieces of equipment within the same year.

It came down to this: either upgrade the combine now, or it needs to survive for another two years.

We took a look at the loan payments left to make on the old combine, what the purchase price and trade price would be, and ran a payment schedule to finance the new purchase. Payments would only be increasing by around $15,000 per year, but the commitment would continue on for three years longer.

I don’t necessarily buy the argument that a newer combine results in fewer repairs. Yes, there are some lemon combines out there, but breakdowns tend to always happen, and the combines are always run through the shop every off-season.

Talking with brother #2, he felt like their current combine wasn’t in that bad of shape, and it could definitely make it another two years. Hanging on a little bit longer helps prevent the inflated price of newer equipment from eating away at your balance sheet and payments.

I told them to consider that by not trading combines yet, they were essentially paying themselves $15,000 per year for the next two years.

They decided to hang on to the current machine and will move forward with the planter upgrade this spring. I consider that to be a $30,000 savings in a one-hour call.

P.S. Before I get to the third (and my favorite example), I’m opening up just 6 spots for private consulting. That includes a full balance sheet update meeting, analysis and review, cash flow planning session, quarterly check-ins, and whatever else you are wanting.

Click HERE to message me if you are interested in having $10,000-per-hour discussions for your operation.

$6,000,000

This farmer/rancher has a bit of a problem. The pasture next to him is up for sale, listed at $6 million.

The good news is, he has options.

The operation has been working off of cash and has not had a dip in their operating note this past year. That said, there is not $6 million worth of cash sitting around available to be able to make this purchase. On top of that, the operation made large purchases in each of the past two years and is completely tapped out of their collateral.

How do we move forward? We discussed three options.

You could try to find a partner and break the property up with the purchase. That would give him only around 2/3 of the ground, but it would make the purchase small enough that he could implement existing cash and make the purchase with this ground being the only collateral provided. This is clean and easy financing if he can find the right partner, which might be a stretch.
He owns a highly improved grain site, which isn’t situated in the best location. The neighbor has inquired about the property once or twice. This could be a situation where he offloads the bin site and 1031 exchanges into this pasture ground if he can make all the timing and offers work together.
He does own another property out of state, which is in its last year of being farmed by the current tenant. With some minor tweaks to the property and a little bit of cash injection, he could move this property from a dryland to an irrigated parcel. This land use improvement would allow for the bank to reappraise the property at a much higher level. It will be tight, but it’s possible that he could pour cash into the purchase and put up just enough collateral with this land use change and tie it with a new purchase to get the $6 million property under contract and financed.

Each one of these options has advantages and drawbacks:

1) would deplete cash and make for a less desirable property.

2) saves cash, but makes you lose another valuable and income-producing asset.

3) stretches you even more with cash and collateral, but you are left with a desirable farm setup.

There certainly is a wrong choice if we dig into it deep enough. This isn't a $10,000/hour call. The impact will be millions.

These decisions cannot be made lightly. They change your operation for decades to come. You need a financial advisor, partner, or someone like a farm CFO to help you walk through your options and brainstorm those advantages and disadvantages financially.

Message me if you are losing money, want higher returns, or have a big decision on the horizon. Any of these could be your $10,000/hour call. Contact me here and we can connect.

Have a great week!

Grant